Provides Initial Guidance for Fiscal Year 2019
Company to Optimize Restaurant Portfolio in part through
Refranchising of Select Locations
ICR Conference Presentation and Webcast at 10:00 am ET Today
LAKE FOREST, Calif.--(BUSINESS WIRE)--
Del Taco Restaurants, Inc. (“Del Taco” or the “Company”), (NASDAQ:
TACO), the second largest Mexican-American quick service restaurant
chain by units in the United States, today announced preliminary
unaudited fiscal fourth quarter 2018 sales results for the period ending
January 1, 2019 ahead of management’s presentation and webcast at the
ICR Conference at 10:00 am ET this morning. Del Taco also provided
updated guidance for fiscal year 2018 as well as initial guidance for
fiscal year 2019.
Fiscal Fourth Quarter 2018 Highlights
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System-wide comparable restaurant sales grew 1.9%, marking the 21st
consecutive quarter of gains;
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Company-operated comparable restaurant sales grew 1.0%, marking
the 26th consecutive quarter of gains. Company-operated comparable
restaurant sales growth was comprised of average check growth of
4.9%, including over 1% of menu mix growth, partially offset by a
transaction decrease of 3.9%;
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Franchised comparable restaurant sales grew 3.2%;
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Total revenue of approximately $157.1 million (including $4.1 million
of franchise advertising contributions and $0.3 million of other
franchise revenue required as part of the revenue recognition rules
adopted in the fiscal first quarter of 2018 whereby the offsetting
impact is an increase to expenses such that there is no impact on
operating income and net income), representing 7.2% growth from the
fiscal fourth quarter of 2017; and
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Company restaurant sales of approximately $146.7 million, representing
4.4% growth from the fiscal fourth quarter of 2017.
Adjusted EBITDA* is a non-GAAP measure and defined below under “Key
Financial Definitions”.
The expected sales results are preliminary and unaudited, have not been
reviewed by our independent registered public accountants, and remain
subject to the completion of normal quarter-end accounting procedures
and adjustments and are subject to change. The Company expects to
release financial and operating results for its fiscal fourth quarter
and fiscal year ended January 1, 2019 during March 2019.
John D. Cappasola, Jr., President and Chief Executive Officer of Del
Taco, commented, “Preliminary comparable restaurant sales performance
during the fourth quarter reflected sequential improvement from the
third quarter despite continued competitive discounting, and again
included stronger results from our franchisees which supports brand
portability due to their broad geographic footprint. Our comprehensive
plan in 2019 includes pricing, menu mix and transaction strategies
designed to achieve positive comparable restaurant sales in 2019, and to
protect our strong restaurant margins. This plan is buoyed by key
transaction initiatives designed to enhance our core value program,
deliver exciting new products and expand our digital presence through
our new App and launch of multiple third party delivery providers.”
Cappasola continued, “This morning, we also provided initial guidance
for 2019 and announced our intention to surgically evolve our restaurant
portfolio to stimulate growth in new restaurants and existing restaurant
AUV’s. This effort begins in the LA area by acquiring three high volume
franchise restaurants and refranchising thirteen lower volume company
restaurants during the first quarter of 2019. Further planned actions
include refranchising non-core Western markets to new or existing
franchisees with proven operational and development capabilities which
would shift our approximately 55% current company ownership to
approximately 45% by the summer of 2020. Our portfolio optimization
strategy positions the brand for accelerated franchise growth and
focuses company operations on our core Western markets and strategic
seed markets to support emerging market growth.”
Updated Fiscal Year 2018 Guidance
Based upon these preliminary unaudited sales results, Del Taco is
offering the following updated guidance for fiscal year 2018, a 52 week
period ending on January 1, 2019.
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System-wide comparable restaurant sales growth of approximately 2.5%,
including 1.5% for company-operated restaurants and 3.8% for
franchised restaurants;
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Total revenue of approximately $505.3 million (including $13.3 million
of franchise advertising contributions and $0.9 million of other
franchise revenue required as part of the new revenue recognition
rules adopted in the fiscal first quarter 2018 whereby the offsetting
impact is an increase to expenses such that there is no impact on
operating income and net income), representing 7.2% growth from fiscal
year 2017;
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Company restaurant sales of approximately $471.2 million, representing
4.2% growth from fiscal year 2017;
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Restaurant contribution margin* of at least 19.5% (representing the
high end of the previously guided range);
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Adjusted EBITDA* of at least $71.5 million (representing the high end
of the previously guided range); and
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Twenty five system-wide restaurant openings, including thirteen
company-operated restaurants.
Restaurant contribution* and Adjusted EBITDA* are non-GAAP measures
and defined below under “Key Financial Definitions”.
Restaurant Development
During the fiscal fourth quarter 2018, the Company opened seven
company-operated and eight franchised restaurants for a total of fifteen
system-wide openings.
During fiscal year 2018, the Company opened thirteen company-operated
and twelve franchised restaurants for a total of twenty five system-wide
openings. There were also a total of nine system-wide closures,
consisting of six company-operated and three franchised restaurants.
Repurchase Program for Common Stock and Warrants
During the fiscal fourth quarter 2018, the Company repurchased 765,209
shares of common stock at average price of $11.05 per share for a total
of $8.5 million, and repurchased 20,596 warrants at an average price per
warrant of $1.93. As of the end of the fiscal fourth quarter
approximately $29.6 million remains under our $75 million repurchase
authorization.
Initial Fiscal Year 2019 Guidance
The Company is providing the following initial guidance for the 52-week
fiscal year 2019 ending December 31, 2019, based in part on preliminary
and unaudited fiscal year 2018 sales results and therefore remain
subject to change. This guidance embeds the acquisition of three high
volume restaurants and refranchise of thirteen lower volume restaurants
in the LA area during the first quarter of 2019, and does not include
any potential impacts from the adoption of the new lease accounting
rules. Additional guidance will be forthcoming when fiscal fourth
quarter and fiscal year 2018 financial results are reported in March
2019.
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System-wide comparable restaurant sales growth of low-single digits;
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Total revenue between $517 million and $527 million;
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Company restaurant sales between $481 million and $491 million;
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Menu pricing of up to 4%;
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Food inflation of approximately 2% to 3%, including higher
distribution and transportation costs;
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Labor inflation of approximately 6%, primarily driven by a $1 increase
in California minimum wage (from $11 to $12) which took effect earlier
this month;
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Restaurant contribution* margin between 18.8% and 19.3%;
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Adjusted EBITDA* between $70.0 million and $72.5 million; and
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At least 25 gross system-wide new unit openings and an estimated 1%
system-wide closure rate. System-wide new unit openings in fiscal year
2019 will slightly skew toward franchise restaurants.
Restaurant contribution* and Adjusted EBITDA* are non-GAAP measures
and defined below under “Key Financial Definitions”.
We have not reconciled guidance for Adjusted EBITDA to the corresponding
GAAP financial measure because we do not provide guidance for the
various reconciling items. We are unable to provide guidance for these
reconciling items because we cannot determine their probable
significance, as certain items are outside of our control and cannot be
reasonably predicted since these items could vary significantly from
period to period. Accordingly, a reconciliation to the corresponding
GAAP financial measure is not available without unreasonable effort.
Restaurant Portfolio Optimization
The Company intends to optimize its restaurant portfolio to help
stimulate growth in new restaurants and existing restaurant AUV’s. This
includes the following actions and is expected to shift our
approximately 55% current company ownership to approximately 45% by the
summer of 2020.
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The Company expects to finalize a purchase of three high volume
franchised restaurants in the LA area during the fiscal first quarter
of 2019 which will be immediately accretive to earnings.
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The Company expects to refranchise thirteen lower volume
company-operated restaurants in the LA area to three separate and
experienced Del Taco franchisees during the fiscal first quarter of
2019. These franchisees have each previously demonstrated their
ability to improve performance at restaurants they acquired from other
Del Taco franchisees.
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The Company also expects to refranchise non-core Western markets to
new or existing franchisees with proven operational and development
capabilities who commit to additional development in these and/or
other markets. Because the exact timing of these refranchising
transactions has not yet been determined, they are not embedded within
the initial fiscal year 2019 guidance referenced above.
ICR Conference Participation
John D. Cappasola, Jr., President and Chief Executive Officer; and
Steven L. Brake, Executive Vice President and Chief Financial Officer;
will present at the ICR Conference this morning, Monday, January 14,
2019 at the Grande Lakes Hotel and Resort in Orlando, Florida. The
presentation will begin at 10:00 AM Eastern Time and will be webcast
live and later archived.
The presentation will be posted to the Del Taco website before the
presentation begins at investor.deltaco.com under the “News & Events”
tab, where the webcast will be viewable. The webcast can also be viewed
directly through the conference website at www.icrconference.com.
Key Financial Definition
Comparable restaurant sales growth reflects the change in
year-over-year sales for the comparable company, franchise and total
system restaurant base. Restaurants are included in the comparable store
base in the accounting period following its 18th full month
of operations and excludes restaurant closures.
Restaurant contribution* is defined as company restaurant sales
less restaurant operating expenses, which are food and paper costs,
labor and related expenses and occupancy and other operating expenses.
Restaurant contribution margin is defined as restaurant contribution as
a percentage of company restaurant sales. Restaurant contribution and
restaurant contribution margin are neither required by, nor presented in
accordance with, GAAP. Restaurant contribution and restaurant
contribution margin are supplemental measures of operating performance
of restaurants and the calculations thereof may not be comparable to
those reported by other companies. Restaurant contribution and
restaurant contribution margin have limitations as analytical tools, and
you should not consider them in isolation or as substitutes for analysis
of results as reported under U.S. GAAP. Management believes that
restaurant contribution and restaurant contribution margin are important
tools for investors because they are widely-used metrics within the
restaurant industry to evaluate restaurant-level productivity,
efficiency and performance. Management uses restaurant contribution and
restaurant contribution margin as key performance indicators to evaluate
the profitability of incremental sales at Del Taco restaurants, to
evaluate restaurant performance across periods and to evaluate
restaurant financial performance compared with competitors.
Adjusted EBITDA* is defined as net income/loss prior to interest
expense, income taxes, and depreciation and amortization, as adjusted to
add back certain charges, such as stock-based compensation expense and
transaction-related costs, as these expenses are not considered an
indicator of ongoing company performance. Adjusted EBITDA is a non-GAAP
financial measure and should not be considered as an alternative to
operating income or net income/loss as a measure of operating
performance or cash flows or as measures of liquidity. Non-GAAP
financial measures are not necessarily calculated the same way by
different companies and should not be considered a substitute for or
superior to GAAP results. We believe Adjusted EBITDA facilitates
operating performance comparisons from period to period by isolating the
effects of some items that vary from period to period without any
correlation to core operating performance or that vary widely among
similar companies. These potential differences may be caused by
variations in capital structures (affecting interest expense), tax
positions (such as the impact on periods or changes in effective tax
rates or net operating losses) and the age and book depreciation of
facilities and equipment (affecting relative depreciation expense). We
also present Adjusted EBITDA because (i) we believe this measure is
frequently used by securities analysts, investors and other interested
parties to evaluate companies in our industry and (ii) we use Adjusted
EBITDA internally as a benchmark to compare performance to that of
competitors.
About Del Taco Restaurants, Inc.
Del Taco (NASDAQ: TACO) offers a unique variety of both Mexican and
American favorites such as burritos and fries, prepared fresh in every
restaurant's working kitchen with the value and convenience of a
drive-thru. Del Taco's menu items taste better because they are made
with quality ingredients like fresh grilled chicken and carne asada
steak, hand-sliced avocado, hand-grated cheddar cheese, slow-cooked
beans made from scratch, and creamy Queso Blanco. Del Taco’s new
advertising campaign, “Celebrating the Hardest Working Hands in Fast
Food,” further communicates the company’s commitment to providing guests
with fresh, quality food prepared by hand every day. Founded in 1964,
today Del Taco serves more than three million guests each week at its
580 restaurants across 14 states. For more information, visit www.deltaco.com.
Forward-Looking Statements
In addition to historical information, this release may contain a number
of “forward-looking statements” as defined in the Private Securities
Litigation Reform Act of 1995. Forward-looking statements include,
without limitation, information concerning Del Taco’s possible or
assumed future results of operations, business strategies, competitive
position, industry environment, potential growth opportunities and the
effects of regulation. These statements are based on Del Taco’s
management’s current expectations and beliefs, as well as a number of
assumptions concerning future events. When used in this press release,
the words “estimates,” “projected,” “expects,” “anticipates,”
“forecasts,” “plans,” “intends,” “believes,” “seeks,” “target,” “may,”
“will,” “should,” “future,” “propose,” “preliminary,” “guidance,” “on
track” and variations of these words or similar expressions (or the
negative versions of such words or expressions) are intended to identify
forward-looking statements. Such forward-looking statements are subject
to known and unknown risks, uncertainties, assumptions and other
important factors, many of which are outside Del Taco’s management’s
control that could cause actual results to differ materially from the
results discussed in the forward-looking statements. These risks
included, without limitation, consumer demand, our inability to
successfully open company-operated or franchised restaurants or
establish new markets, competition in our markets, our inability to grow
and manage growth profitably, adverse changes in food and supply costs,
our inability to access additional capital, changes in applicable laws
or regulations, food safety and foodborne illness concerns, our
inability to manage existing and to obtain additional franchisees, our
inability to attract and retain qualified personnel, our inability to
profitably expand into new markets, changes in, or the discontinuation
of, the Company’s repurchase program, and the possibility that we may be
adversely affected by other economic, business, and/or competitive
factors. Additional risks and uncertainties are identified and discussed
in Del Taco’s reports filed with the SEC, including under Item 1A. Risk
Factors in our Annual Report on Form 10-K for the year ended January 2,
2018, and available at the SEC’s website at www.sec.gov
and the Company’s website at www.deltaco.com.
Forward-looking statements included in this release speak only as of the
date of this release. Del Taco undertakes no obligation to update its
forward-looking statements to reflect events or circumstances after the
date of this release or otherwise.
View source version on businesswire.com:
https://www.businesswire.com/news/home/20190114005275/en/
Investor Relations Contact:
Raphael Gross
(203) 682-8253
investor@deltaco.com
Source: Del Taco Restaurants, Inc.